The mak­ing of an ex­cel­lent stock picker

Corona­tion’s Tony Gibson dis­cusses how the mar­kets have changed over the decades and con­sid­ers what the fu­ture holds for the lo­cal as­set man­age­ment in­dus­try.

Finweek English Edition - - Fund Focus - By Leon Kok

with over three decades’ ex­pe­ri­ence, as­set man­ager Tony Gibson is per­haps best re­mem­bered by mem­bers of the older gen­er­a­tion for hav­ing been a con­sis­tently suc­cess­ful stock picker in the 1990s. He com­menced his ca­reer with the for­mer UAL in the mid-1980s, was a pi­o­neer of the for­mer Syfrets unit trust oper­a­tion in the late 1980s, was a founder mem­ber of Corona­tion in 1993 and has held sev­eral prom­i­nent po­si­tions in it since then. He now man­ages Corona­tion’s fund of funds port­fo­lio.

Leon Kok spoke to him last month. Here are ex­cerpts from their con­ver­sa­tion:

Fa­mously, you and BoE’s Chris Lo­gan were the fledg­ling in­dus­try’s star port­fo­lio man­agers and fought for promi­nence quar­ter in and quar­ter out. Nei­ther of you ever missed a beat!

To be hon­est, rel­a­tive to to­day, the en­vi­ron­ment was pretty much the “Wild West”. As the say­ing goes, “You should never con­fuse ge­nius and luck.” Was I a bril­liant stock-picker? No. I was lucky to be in­vested in the right stocks at the right time.

Let me fast for­ward this to to­day. I prob­a­bly wouldn’t get the same job at Corona­tion to­day, be­cause my CV wouldn’t be good enough. Many of those com­ing into the in­dus­try now are brighter than I was – smarter and more com­pe­tent.

What were some of your ear­li­est stock-pick­ing win­ners?

My big­gest suc­cess, per­haps, was Tren­cor, which I hap­pened to iden­tify well be­fore my peers did. Oth­ers in­cluded suc­cess­ful mid-caps back then such as Hu­daco, Delta Elec­tric and Fos­chini. Ad­di­tion­ally, in the 1980s, min­ing stocks made up 75% of the in­dex. I mostly avoided min­ing stocks. What you don’t own is also im­por­tant!

With our clients’ re­tire­ment funds, I also hap­pened to sense that in­fla­tion was en­ter­ing a pe­riod of sec­u­lar de­cline af­ter the rise in the early 1980s. I bought a lot of call op­tions on long-term South African bonds, and that came through very well.

What makes a good stock picker?

An amal­gam of things. Ob­vi­ously one needs to be fi­nan­cially very nu­mer­ate and an­a­lyt­i­cal. But you also need per­spec­tive and un­der­stand­ing of in­vest­ment his­tory. You will of course need to be able to deal with the bumps in the road along the way. The more con­vic­tion you have in your re­search, the more you’ll be able to with­stand those bumps.

On the other hand, there also needs to be flex­i­bil­ity of mind. In be­ing dog­matic, there is a big dif­fer­ence be­tween con­vic­tion and stub­born­ness. It’s im­por­tant that, when you see the writ­ing on the wall, you’re able to recog­nise it and say, “I’m wrong.”

A new di­men­sion that has be­come im­por­tant – at Corona­tion, cer­tainly – is to be men­tally strong and con­struc­tive. If an ap­pli­cant fails their psy­cho­me­t­ric tests, we don’t go fur­ther with them. You also have to be a team player, be­cause if you aren’t, it could be de­struc­tive.

What were your worst night­mares?

There were two in par­tic­u­lar. The first was very early on in Corona­tion’s life, when we in­vested in JCI based on in­ad­e­quate mod­el­ling. We still re­mind our­selves reg­u­larly of this bit­ter les­son.

The sec­ond mis­take was when we placed money in a hedge fund that went un­der. In hind­sight, I should have done more due dili­gence about the fund man­ager. That was a low point of my ca­reer due to the fact that it was en­tirely my fault.

Some would ar­gue that SA is headed for a sharp de­cline dur­ing the next 10 to 20 years. What is your view?

We are not look­ing good right now. If any­one thinks that a new pres­i­dent will take over in 2019 and clean things up overnight, I would strongly chal­lenge that view. We have deep struc­tural is­sues that need fix­ing. Of course, with a 20-year hori­zon, there is al­ways hope. But this will need vi­sion­ary lead­er­ship, cou­pled with a mind­set change in the pop­u­la­tion with re­gard to pro­duc­tiv­ity and a will to suc­ceed.

What is the out­look for the do­mes­tic as­set man­age­ment in­dus­try?

Prob­a­bly, the big­gest is­sue wor­ry­ing me is that the world hasn’t re­solved what caused the fi­nan­cial crash nine years ago. You now have a whole gen­er­a­tion of peo­ple in the in­dus­try who only know a close-to-zero in­ter­est rate en­vi­ron­ment. This is a dan­ger­ous sit­u­a­tion.

The po­ten­tial re-emer­gence of in­fla­tion is a par­tic­u­larly crit­i­cal is­sue for in­vestors. This is partly be­cause be­nign in­fla­tion has bred in­vestor com­pla­cency, and that com­pla­cency has be­come even more en­trenched in the nearly nine years since the fi­nan­cial cri­sis. As a re­sult, in­vestors are not quite sure how to as­sess risk.

Cen­tral bankers can and do fre­quently get things wrong. Not be­cause they’re do­ing things du­plic­i­tously, but rather due to the re­al­ity that they are seem­ingly blind to the bub­ble-cre­at­ing ef­fect their poli­cies have had dur­ing the past two decades. As we know, burst­ing bub­bles can dev­as­tate both in­vest­ment mar­kets and the real econ­omy. ■ Man­ager of Corona­tion’s fund of funds port­fo­lio

Tony Gibson

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